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Fletcher Building [NZX: FBU], New Zealand's dominant building materials company, will be affected by falling prices as a result of the government's decision to cut tariffs on imported building supplies to improve housing affordability, Prime Minister John Key said.
The National-led government announced in the budget yesterday that it would cut tariffs and anti-dumping duties on building products to zero, in a bid to introduce more competition into the sector. The government, facing an election in September, is trying to reduce the cost of housing, which is being underpinned by lack of supply in earthquake damaged Christchurch, and increased migration driving up prices in the nation's largest city, Auckland.
"Fletchers are the obviously affected party," Key said on the sidelines of a post-budget Trans-Tasman Business Circle lunch in Auckland. "While this will reduce the price, and Fletchers will have to make their own commercial decision about what they do, we don't think in any way it will challenge the viability of their plant."
Shares in Fletcher, New Zealand's largest listed company, touched a three-month low of $9.10. The shares recently fell 0.9 percent to $9.13, extending yesterday's 1.2 percent decline.
A lack of competition for building materials is among reasons cited in a 2012 Productivity Commission report that found it costs as much as 30 percent more to build a house in New Zealand than Australia. The Commerce Commission is currently probing Fletcher's plasterboard supply arrangements with building supplies merchants as its German rival Knauf struggles to get its products into stores.
Fletcher and Knauf have recently been in a High Court tussle over how insulation can be marketed in New Zealand after Knauf started selling its Earthwool insulation here, rivalling Fletcher's Pink Batts product.
Key said the price of housing was a "perennial" issue for the country, and while house price rises aren't surprising in a growing economy, the pace was concerning. Though demand could be controlled by higher interest rates, the government was committed to more houses being built to tackle supply constraints, he said.
As part of new laws passed last year, the government has agreed formal Housing Accords with Auckland and Christchurch and is in talks with local authorities in Wellington, Bay of Plenty and Queenstown in an attempt to boost the availability of affordable housing.
The government is trying to clamp down on what could be a $3.3 billion annual spend in on building materials over the next five to eight years in the state sector, as it deals with the fall-out of the Canterbury rebuild and the ongoing leaky homes saga.
"There's plenty of work, and we think more competitiveness and competition in the building supplies area we think is a good thing," Key said.
The government estimates the loss of tariffs would reduce the cost of an average house build by $3,500, at a cost to the government of $27.8 million over five years.
The three-year suspension of anti-dumping duties on plasterboard, reinforcing steel bar and wire nails will be effective from June 1, while the removal of tariffs is effective July 1. Key said today the changes could become permanent.
The duty cuts will include products such as plasterboard, reinforcing steel bar and wire nails, and tariffs will fall to zero for products such as roofing, cladding, insulation, paints, electrical and plumbing and fittings. Headline tariff and anti-dumping duty rates sit at around 5 percent for most of the products involved.
Other construction supplies likely to be affected include the Pacific Steel roofing business, recently acquired by Australian steelmaker Bluescope from Fletcher Building and Carter Holt Harvey's building supplies arm.
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